Fast Check: What to Look For in Checking Accounts

hecking accounts are the revolving door of personal finance. As your paycheck comes in, your Visa bill, mortgage payment, or automated teller machine (ATM) withdrawals whisk the money right out.

When that revolving door gets jammed by bounced checks or transaction limitations, odds are you'll feel it where it hurts--your wallet. If you ask the following questions when shopping for share draft/checking accounts, you'll save yourself frustration, time, and money. In fact, even if you weren't planning to shop, checking account fees many banks are imposing these days may make you reconsider. Perhaps this is a perfect time to re-evaluate your checking options<!--this is a good place to link to your share draft or checking services--!>.

Does the institution offer several checking options?
"Most people are not aware that banks have four or five different checking accounts," says Edward Mrkvicka Jr., a former bank chief executive officer and author of "Your Bank Is Ripping You Off" (ISBN: 0-312-15246-9). Common accounts include:

Regular checking accounts. These usually waive monthly fees if you maintain a minimum balance.
No-frills checking accounts. These charge a lower monthly service fee in exchange for limited check writing privileges.
NOW accounts. NOW (negotiable order of withdrawal) accounts pay interest, but they may charge higher fees than a regular checking account.

Is a free checking account available?
Many institutions advertise free checking. However, only one of 12 banks actually offers it, says Michael Moebs, chairman of Moebs $ervices in Lake Bluff, Ill. Moebs reports to Congress annually on the use of the term "free" by financial institutions.
According to the Truth in Savings (TIS) Act, a checking account is truly free if it requires:

No minimum balance
No periodic fees
No transaction limitations
No transaction fees as proscribed by TIS regulations

Institutions may tag so-called free accounts with requirements such as use of a debit card or direct deposit. Such actions restrict your options and, therefore, violate TIS.
Many financial institutions offer free checking to the elderly, disabled, or students. Why haven't you heard of this before? "Banks don't advertise it," says Mrkvicka. "You have to ask for it."

      Many institutions
      advertise free checking,
      but only one out of 12
      actually offer it.

Fees are
on the rise,
especially among
multistate banks.

What are the fees?
TIS generally requires that interest and fee information be included in any periodic statements sent to you. You may be charged for:

Monthly maintenance
A balance below the required minimum
Bounced checks
A stop payment
A balance inquiry
ATM or teller use
Debit card use
Photocopies of checks or share drafts
Help in balancing your account if your recordkeeping fails
Canceled check receipt

Fees are on the rise, especially among multistate banks. A 1997 survey conducted by the United States Public Interest Research Group (U.S. PIRG) and the Consumer Federation of America (CFA) found that consumers paid $218.27 in annual account fees at large banks vs. $190.33 in fees at small banks. But at credit unions, the annual cost was only $108.65, or less than 50% of the big bank cost.

What is the institution's check-hold policy?
You can save yourself bounced-check fees by understanding your institution's check-hold policy. Ask these questions:

How quickly can customers draw on deposits? A 1988 law allows banks to hold any local check of $5,000 or less for two business days. Look for posted notices about what check holds apply, and about the hold periods by check type. For example, new accounts, larger sums, or questionable deposits are exceptions that institutions may hold for as long as eight business days, Mrkvicka says. Note "business days" vs. "calendar days." Weekends and banking holidays extend the holds.
Are ATM and debit transactions processed more slowly than teller transactions?
What time does the institution cut off transactions for that business day? Many institutions close accounts by midafternoon, often 2 p.m. In that case, any deposits you make after 2 p.m. won't be processed until the next business day.

      "Business days"
      are different from
      "calendar days."

Which account best suits your habits? To find the account that's best for you, examine your money management habits.

Can you maintain a minimum balance? If so, consider a regular checking account. Some institutions may allow you to link your savings and checking account balances to ensure you meet the minimum.
How many transactions do you make in a month? If you rarely use checking, consider a no-frills account or one that charges a transaction fee instead of a monthly service fee. Frequent customers may be better off paying a monthly fee for unlimited transactions.
Do you want access to a teller? Some institutions charge fees for using an ATM instead of a teller. Others offer accounts with a cheaper monthly service fee if you conduct all your transactions through the ATM.

Checking accountability
Surprisingly, seven of eight people don't balance their checking accounts monthly, says Moebs. That's asking for trouble. At minimum, each month check your statement and confirm all deposits, ATM transactions, and large withdrawals. If anything looks amiss, check with your financial institution right away.
      And be sure to record ATM and debit transactions in your share draft/check register in a timely way.
      Once you choose your account, handle it responsibly. You'll keep that convenient revolving door in motion and get the most out of your money.
      As you compare checking accounts, remember that credit unions are more likely to offer checking accounts (called share draft accounts) with a lower minimum balance, higher dividend rate, or no service fees<!--this is a good place to link to your checking/share draft services--!>, says Mrkvicka.

      Credit unions are
      more likely to offer
      share draft/checking accounts
      with a lower minimum balance,
      higher dividend rate,
      or no service fees.

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      Investment Style       Auto Transplants?
      Consumer Choice       Fast Facts